Characteristics of Oligopolies

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20th March 2002

Kingtoi Ho

IB1

Characteristics of Oligopolies

The definition of an oligopoly is a market structure under the control of a few firms. This structure allows for almost complete control over the market, making them price makers. As stated in Stanlake, mostly mergers and amalgamation (combining of firms), bring about the oligopoly structure. The characteristics of an oligopoly are written below, also a large subject in Oligopolies is collusion. That is also discussed below.

Characteristics given by Stanlake involve: the barriers to entry, the variation of the competing products, supernormal profits in the long-run, stickiness of price, domination of a few small firms at the top and most importantly the no-price competition undergone. Another found under the works of the Howard Community College, are those involving the interdependency of the firms.

        Stanlake shows there are barriers to entry, disallowing incapable firms to enter the market. Incapability may reflect few companies having funds, legal permission or preference on part of the consumer. Most of the time oligopolies are the big firms and have more capital and use this in a way which satisfies the consumer. The smaller companies do not keep up with the larger ones and drop out of the market. The barrier to entry now comes when the firm wishing to participate cannot meet the larger firms’ standards.

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        The products, under which oligopolistic market structure is sold, can be varying or identical. For example there are different types of gasoline available, yet the quality or source of the product is not very different and they are said to be identical. This is an aspect of oligopolies as there is no reason for identical goods not to be in there. Identical goods take part because the firms see that the specific need of the consumer is good-X and the two companies produce that. Different goods take part because the oligopolies (as well as other market structures) recognise the general need of ...

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